Is Land Banking As Profitable As Other Real Estate Strategies? | Ep. 3

Welcome back to Simply Real Estate w/ Todd C. Slater. Last week we talked about Real Estate Speculation, and we, specifically, looked at how houses and other buildings can be a good investment. This week we’re looking at speculation from a different perspective. We are going to discuss Land Banking, the buying and selling of land, and all the different strategies you can use to make it as profitable as possible. However, before we can get to that of course, we have to discuss this week’s latest Real Estate news.

Real Estate News of the Week: U.S. Fed Drops Interest Rates

This week’s news, big big news, is the fact that the U.S. Fed is reducing interest rates. It’s been a steady climb for the past several years since the recession, and now, they are finally putting the breaks on and putting it in reverse. So, what does this mean, exactly? Well, it sounds like they’re saying the world economy is starting to suffer, which makes you wonder who is making all of that happen…

You got it! We’re pretty sure the pressure Mr. Trump is putting on China and the rest of the world to cooperate is not going well, and ultimately, in the end, the U.S. Fed sees this as a problem. This just might mean that the economy is going to stall out a little. So, what do they do? They reduce interest rates, and that’s, probably, going to keep the domestic product moving. This means that things are going to be more affordable for people with mortgages or people that want to go out and buy a property.

But what does this mean for the Bank of Canada? Well, Stephen Poloz said, flat-out, that he is not going to budge with the Canadian interest rates. Not now, at least. So, we’re going to wait through the fall, but at least, we’re not moving up.

For now, interest rates are being more attractive with the banks because they’re giving heavy discounts. This is very important because the market is going to stay fairly steady, right now, when we talk about mortgages. That’s kind of a wrap for the big news of the week, but now let’s talk about the topic of the week.

What is Land Banking?

As we’ve mentioned, our topic this week is actually a continuation on speculation, and the main focus, of course, is land banking. Do you know what land banking is? Well, we’re going to break it down for you!

Land Banking Basics

So, what has happened over the several years is that we’ve seen a lot of people buying up farmland, or land in the outer markets just away from the major cities, knowing that eventually, the urban sprawl is going to happen. This is where we start seeing suburbs pop up. So, one of the things people do is, of course, they accumulate as many acres as possible.

Signs of an Urban Sprawl

Now, for many of you, when you’re out driving in the country, you might see a big sign saying “Coming Soon”, “Development”, or something along those lines. That’s a dead ringer for people to know that there’s going to be a lot more houses in the area.

One of the other things that we always like to look out for are major corporations that are also saying “Coming Soon” or “New Head Office”. Another big one that you should look out for is Walmart. When you start seeing those signs going up that a Walmart’s going to be built, you can be pretty sure that there’s a lot of properties that are going to be built up around them.

Land Banking in Major Cities

Now, one of the other things that people are doing for land banking, right now, is in the core of major cities. What they’ll do is they’ll buy up some old properties and start putting them together. This is where we start talking about the banking part. So, this is on one street, perhaps. There are two or three houses that are being bought up in a row. Then they’re waiting out the rest of the owners. Eventually, they’ll turn around, tear these down, and then, put up some kind of multi-res, townhomes, or perhaps a low-rise or taller building, where possible.

So, land banking is alive and well, right now. Don’t be surprised, if somebody has sold the property beside you and on the other side of you, and they’re both being rented, chances are they’re waiting for you to move. So again, opportunity does arise when we take a look at prices.

An Investor’s Greatest Asset

This is one of the things that we think a lot of people should be aware of, but land banking can take time. In fact, time is an investor’s greatest asset. In this case, sometimes investment has to be held anywhere from 10 to 25 years, and we know a lot of people are thinking “Wow that’s a long time”, but just know that in the end, your patience will be rewarded.

Parking Lot Land Banking

Well if we take a look at some of the major metropolitan cities, we can turn around and look at a lot of the parking lots. Now, this was again a form of land banking. What people would do is they would buy land in growing cities and turn it into paid parking, holding it for years while it even maintained the property taxes. In fact, in some of the major cities, some parking lots sold for hundreds of thousands, and the fact is that they also had cash income for very many years while the land’s value was appreciating.

So this is one of the approaches to land banking. Again it’s not just small accumulation, sometimes it’s just waiting it out.

If you’re thinking more about investment in the near future, land banking may be a little bit difficult. So many people have already hopped on that bandwagon. Lots of developers have really pushed out into the outer markets even an hour to two hours away from any major metropolitan city, but it’s still an opportunity. Sometimes there is still money to be made on this, and again for yourselves, you have to decide how long do you want to wait for your investment to have returns.

If you have any questions or are unsure about anything we covered this week, you can book a phone meeting or in-person meeting with Todd below, and he would be glad to help you out.